Renewable Energy and the Law of Receding Horizons

Many people believe that we can realistically build a 100% renewable energy society by 2050, thereby totally getting off fossil fuels in time to avoid the problems related to peak oil and climate change. This is certainly an extremely attractive ideal and, theoretically, it could be accomplished through a sustained exponential growth rate of about 20% p.a. over the next 37 years. As this post will discuss, however, such sustained exponential growth is highly unlikely to materialize.

The reasons behind this assertion can be summarized via the law of receding horizons: the tendency for a goal to just stay on the horizon no matter how hard you struggle towards it. When applied to the sustained exponential renewable energy expansion mentioned above, this simply implies that a significant number of factors will work to make renewable energy deployment progressively more difficult as the total installed capacity increases. This post will briefly discuss these factors.

Declining EROI of energy systems with increasing deployment

As always, humanity will exploit the highest quality resources first according to the lowest-hanging-fruit principle. When looking at the major categories of renewable energy, this implies developing hydro first, followed by wind and finally solar. In addition, for each resource, the regions with greatest potential will generally be exploited first (solar PV in sun-poor Germany is currently a notable exception). Obviously, the climate varies greatly around the globe and so will the Energy Return on Investment (EROI) of the renewable energy systems deployed at any given site.

As an example, the figure above shows how the global wind energy resource quality will decline as the total installed capacity increases. Eventually, the resource quality becomes so low that the EROI drops below 1 and negative net energy is generated (more energy is needed to build, install and ultimately decommission the turbine than will be generated over its operational lifetime). Naturally, this will lead to a situation where new capital investments yield progressively lower returns, decreasing investment attractiveness with time.

Declining EROI of the total energy industry with increasing deployment

As intermittent sources of renewable energy increase their share of electricity production above ~10%, a number of costly alterations and additions will be required in increasing quantities. Energy storage, transformation, long-distance transportation and overcapacity will all subtract from the overall EROI of the energy industry and inflate energy prices. An increased share of intermittent sources that enjoy priority for selling electricity to the grid will also reduce the capacity factors of fossil fuel power plants and increase the necessity for expensive dispatchable power capacity, thereby further increasing costs.

The impact of energy storage through hydrogen is clearly visible in the figure above. In addition, the large capital cost of pumped hydro storage is given in the next figure. Pumped hydro is probably the most economical energy storage mechanism currently available, but it is fairly certain that such prices will be economically unfeasible.

Capital funding issues

The high capital costs of renewable energy compared to fossil fuels is another important factor, especially in a stagnant economy where credit is tight. For fossil-fuel plants, up-front costs are also large, but this is shared with running costs related to fuel purchases and plant operation/maintenance which can contribute roughly between 30% (modern coal) and 70% (natural gas) to the final cost of electricity. In addition to requiring large capital investments, the potential returns on such investments are also rather uncertain because of a strong dependence on unpredictable factors such as government policy, climate change and macro-economic developments. The retroactive feed-in tariff cuts in Southern Europe offer a fitting example.

As an illustration, the 2013 EIA new plant capital costs of various energy technologies and pumped storage for balancing intermittent renewables are given above. In addition, each cost was divided by an optimistic capacity factor (rough estimate): 0.8 for coal and gas, 0.9 for nuclear, 0.25 for onshore wind, 0.4 for offshore wind, 0.25 for solar thermal, 0.2 for solar PV and 0.5*0.75 for pumped hydro with 75% round-trip efficiency.

Sensitivity of renewable energy systems to the energy price

Since renewable energy systems are very energy intensive to produce (have a low EROI), increases in the energy price will significantly increase the capital costs of renewable energy (generation and balancing). As a result of various factors discussed in this post, energy costs will rise with increasing renewable energy deployment, thereby starting a vicious price inflation cycle where increasing energy prices increase the price of renewable energy which again increases energy prices.

Time and monetary cost to revamp other sectors

An exponentially increasing share of renewable energy in the global energy mix will demand a number of very costly changes to other industries. In the absence of a gamechanging technological breakthrough in bioenergy, the bulk of the transportation sector will have to be revamped to run on electricity (battery or hydrogen fuel cell). Other vital industries such as steelmaking and cement will also need to be completely revamped and could see a drop in efficiency (requiring more energy per unit output). If the Exxon prediction shown below is anything to go by, this will be a significant limiting factor.

Material constraints and waste processing

Renewable energy is not only energy intensive, but also material intensive. Large quantities of steel (which is heavily dependent on coal), plastics (which are made from oil and natural gas) and rare earth minerals (identified in a recent EU study as a potential bottleneck) will be required in the energy transition. If the efficiency of steelmaking reduces (as outlined in the previous paragraph), gas peaks together with oil or rare earths become very expensive due to supply constraints, the capital costs of renewable energy will increase significantly.

A sustained exponential expansion in renewable energy will also create a parallel exponential expansion in e-waste from solar panels, wind turbines and batteries. Processing and recycling this vast stream of potentially toxic solid waste will be very energy intensive, thereby decreasing the full life-cycle EROI of renewable energy sources. Also, if this exponentially increasing e-waste stream cannot be properly handled, significant additional political resistance will be encountered.

Human capital constraints

Since a renewable energy economy will most probably have a much lower overall EROI than a conventional fossil fuel energy economy, the shift to renewables will also require large shifts in the labour market. A larger portion of the workforce will have to be deployed somewhere along the renewable energy value chain than is currently deployed along the fossil fuel energy value chain. The high-tech nature of renewable energy generation and balancing will also demand a great deal of skilled labour – something which is already in very short supply. Such a large scale exponential shift in the labour market will be practically very challenging and is likely to result in labour shortages, driving up the salaries of people working along the renewable energy value chain and thereby increasing the price of renewable energy.

The negative effects of climate change

Renewable energy systems depend completely on the local climate where they are installed (quantity of sun, wind and precipitation together with the variability/volatility of these weather patterns). Climate change has the potential to substantially reduce the total energy generated by any renewable energy installation through decreases in solar/wind influxes, increasing climactic volatility and complete shifts in weather patterns. Increased cloud cover due to warmer air will reduce solar insolation in certain areas, a reduced temperature gradient between the equator and the poles will reduce global wind speeds, increased climate volatility will enforce greater downtime for wind turbines and reduce the output of bioenergy, and permanent shifts in weather patterns will reduce the performance of renewable energy installations originally cited in ideal locations.

Market forces

Rapid deployment of renewables with the aim of mitigating climate change implicitly implies a significant decrease in the demand for fossil fuels. This creates a severe market-based problem because a decreased fossil fuel demand will cause a parallel decrease in price, making renewables even less competitive against fossil fuels. Just like unsustainable oil demand caused the oil price to quadruple in the 21st century, a drop in demand large enough to make unconventional oil production unnecessary will once again slash the price by a factor of four. An environment of rising renewable energy and falling fossil fuel prices will offer great headwinds to renewable energy deployment, especially if the economy remains weak.

The problem is that direct government subsidies can distort market forces only for so long. The unsustainable fall in solar PV prices will most probably demonstrate this over the coming years. As shown above, the bulk of the large drop in PV module prices in recent years was due to declining margins (where governments kept companies afloat) while technology advancement was responsible for only 7% of the decline.

Social and political resistance to rising energy prices

Currently, renewable energy can only be deployed in an environment of substantial subsidies. Germany is the best example of this approach and generous government subsidies of various kinds have led to a very impressive rate of renewable energy deployment in recent years. However, the share of wind and solar energy (13.2% fof total electricity generation in 2012) is now starting to create substantial problems due to the expensive promises made to investors in renewable energy infrastructure.

Electricity prices are rising rapidly (the growth of the renewable energy surcharge is given above in Euro cents per kWh) and struggling utility companies are forced to replace cleaner gas-fired power plants with cheaper coal (2012 electricity generation saw a 19 TWh increase from coal and a 10.6 TWh decrease from gas). These problems will only get worse as the share of wind and solar is lifted beyond 13.2% of electricity (around 6% of total energy consumption) in the years ahead, especially with the ongoing stagnation of the European economy. The social and political resistance to this self-imposed austerity is already gathering momentum and will be observed with interest in coming years.

Geopolitical implications

Renewable energy advocates often tout the energy independence offered by local implementation of renewable energy as a major selling point, but this is unfortunately false information. David MacKay, a Cambridge University physics professor, gives an excellent talk (based on his free e-book) on how the laws of nature make renewable energy independence impossible for many highly populous developed countries under current consumption patterns. The solution is then simply to build the world’s deserts full of concentrated solar thermal plants (with the necessary energy storage) and transmit the electricity through millions of kilometres of HVDC cable and countless AC/DC substations to the rest of the world.

Apart from the enormous complexity and expense of such an operation, however, this strategy would result in geopolitical implications dwarfing those currently related to oil. The livelihood of entire countries would depend on thousands of kilometres of international cable exposed to political disputes and terrorist activities over the entire distance. The viability of such a plan is highly questionable in the real world, especially one competing over a shrinking resource base. Also, in addition to these problems related to the highly uneven geographic distribution of renewable energy potential, the rare earth minerals crucial in most renewable energy technologies are produced almost exclusively in China, thereby potentially making China the new Saudi Arabia of renewable energy and creating another set of very uncomfortable geopolitical issues.

Murphy’s Law instead of Moore’s law

Renewable energy optimists often look at the electronics industry and claim that, if only the political will existed, a similar exponential expansion could happen in the renewable energy industry. However, the fact that the electronics industry could scale down several orders of magnitude while the renewable energy industry has to scale up several orders of magnitude, implies that Murphy’s Law is much more likely to occur than Moore’s law. Another well-known energy expert, Vaclav Smil, simply builds his scepticism about a rapid transition away from fossil fuels around the historically proven fact that any large scale industrial makeover usually takes many generations to complete – even when there is a clear economic incentive to do so. The transition away from fossil fuels will be the biggest, most resource intensive, most multifaceted and most expensive undertaking ever attempted by man and will also have to be driven against natural market forces for many years into the future. Therefore, even though this post has already pointed out many potential pitfalls, Murphy’s law is guaranteed to reveal many more as we progress along this unknown path. Murphy’s Law is the reason why large projects include contingency plans and budgets. Standard projections of incessant declines in renewable energy prices involve no contingency whatsoever.

In summary

The twelve headwinds to renewable energy deployment briefly discussed in this post will all escalate significantly (and most probably in a highly non-linear manner) as renewables increase their share in the global energy mix. The only factor working to oppose these escalating headwinds will be innovation: the quest to significantly increase the EROI and decrease the capital costs of renewable energy with time. Betting against human innovation often proves unwise, but the fundamental limitations faced by diffuse and intermittent renewable energy sources may very well prove to be too great a challenge even for human innovation. And if the twelve headwinds herein discussed overwhelm the gains brought by innovation, the penetration rate of renewables will run into a brick wall, much like that which happened to nuclear (below).

Naturally, one has to acknowledge the possibility that a number of incredible technological innovations materialize over the next decade or so, significantly changing this outlook. Betting on some future magic to occur seems quite irresponsible, however, and we should not plan our future on this assumption given the recommendations of climate science and the rising material aspirations of 6 billion (and counting) developing world citizens. Meeting these challenges will require a true technology-neutral approach providing clear incentives to the market to rapidly reduce the CO2 and overall energy intensity of the economy using the full spectrum of available options. Continued technology forcing of wind/solar power is likely to hinder more than it helps in this regard.

I am a research scientist searching for the objective reality about the longer-term sustainability of industrialized human civilization on planet Earth. Issues surrounding energy and climate are of central importance in this sustainability picture and I seek to contribute a consistently pragmatic viewpoint to the ongoing debate. My formal research focus is on second generation CO2 capture processes because these systems will be ideally suited to the likely future scenario of a much belated scramble for deep and rapid decarbonization of the global energy system.